Long list of banned goods promotes corruption in customs – World Bank .


Tuesday, 16 November 2010 23:00 Daniel Obi

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A World Bank study on Nigeria’s restrictive trade policy has revealed massive corruption and ineptitude among Nigerian customs officials. This is due to the long list of banned goods which has facilitated substantial smuggling and consequent rent seeking by Nigeria’s Customs and Excise.



The study, which noted the current restrictive trade policy and tariff differentials with neighbouring countries, explained that this has created strong incentives for traders and importers to smuggle goods from neighbouring countries - a situation which has enriched the private pockets of customs officials.

Estimating the amount the country may have lost to this scourge, the world financial apex bank calculates that about N600 billion cargo of banned goods pass through the face of Nigerian customs and enters Nigeria’s market unofficially from Cotonou, the capital of Benin Republic, alone. The figure represents up to 15 percent of Nigeria’s annual imports.

Nigeria is one of several countries with a long list of banned goods which the World Bank report says provide strong incentive for fraud and corruption.

“Whenever tariff duties differentials do exist between two neighbouring countries, the tariff wedge provides opportunities for customs officials to extract rents from imports and smuggling,” it stated.

According to the report, if trade restrictions would be adjusted to limited products,

then over N60 billion, or a quarter of the current revenues collected by the Nigerian customs could be collected on top of the current revenues.

It maintains that existing trade policies in Nigeria have a deteriorating effect on revenue collection due to their complexity and restrictive nature. “They provide opportunities and incentives for smuggling, thus leading to substantial loss in revenues and rampant corruption,” it stressed.

Though Nigeria’s trade policy is based on tariff protection in order to stimulate production diversification and encourage increase of non-oil added-value, the bank argues that this protection has not worked in some sectors, especially textile, due to smuggling and other factors.

During the Olusegun Obasanjo administration, a long list of prohibited goods and bans was introduced for most manufacturing goods, such as textile products, footwear, plastic and leather articles. In February 2008, 968 tariff lines were subjected to import bans, up from 944 lines in November 2005.

The World Bank report, conducted by its officials in the transport section, admits there is little evidence, however, that the high tariffs on product-specific imports and non-trade barriers have helped local industries and the economy itself.

“Instead, the bans have proven to be difficult to enforce and have encouraged smuggling through Nigeria’s porous borders,” the report insisted.

A focus on the textile industry by the report which also relied on local analysts, revealed that the almost permanent bans on textile product import did not create the anticipated production and export growth, in most cases.

It says that despite the almost permanent bans, output and employment have performed poorly.

The report recalled that the textile industry which started out strongly and constituted a large percentage of Nigeria’s manufacturing sector, accounting for 27 percent of home textile market and 72 percent of West Africa’s textile production, has now suffered a serious decline. “The size of the industry declined from 175 firms at its peak in the mid-1980s to only 10 factories in stable condition in 2004. Employment fell from 350,000 to 40, 000,” the World Bank report added.

While arguing for a reduction of the long list of banned products, the report emphasized that the success of domestic production is not simply contingent on restrictive trade policy; it added that domestic producers are sensitive to more than just trade policy. They are also sensitive to issues such as power supply and transportation.

It stated that while the trade policy can serve as an important tool to boost economic growth, it may not be the most relevant.

Apart from corruption, which the long list of banned goods engenders, the report says the current trade regime also undermines Customs officials’ willingness to tackle reforms in the Customs Service. This has resulted in increasing costs to Customs to carry out its operations to detect smuggling activities especially at the border with the Benin Republic.

It calculates that officially, 13 percent of Cotonou Port traffic is destined for Nigeria. But unofficially, 75 percent of containers at the port are actually estimated to be headed for Nigeria.

The report further explained the smuggling process: In the export country, goods are declared exported to Benin. When goods arrived at Cotonou Port, final destination of goods is changed to Nigeria midway by producing revised papers